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What to do about the debt and the euro? A manifesto

May
13, 2013 – Links International Journal of
Socialist Renewal -- Europe is sinking
into crisis and social regression under the pressure of austerity, recession
and the strategy of “structural reforms”. This pressure is tightly coordinated
at the European level, under the leadership of the German covernment, the European
Central Bank and the European Commission. There is a broad consensus that these
policies are absurd and even “illiterate”: fiscal austerity does not reduce the
burden of the debt but generates a spiral of depression, more unemployment and
despair among the European peoples.

Yet, these policies are rational from the point of
view of the bourgeoisie. They are a brutal way -- a shock therapy --
for restoring the profits, for guaranteeing the financial rents and for
implementing the neoliberal counter-reforms. What is going on is fundamentally
the validation by the states of the financial claims on future production and
GDP. That is why the crisis takes the form of a sovereign debt crisis.

A false dilemma

This crisis reveals that the previous neoliberal
project for Europe was not viable. It presupposed that the European economies
were more homogeneous than they actually are. Differences between countries
increased due to their place in the global market, to their sensitivity to the
euro exchange rate. Inflation rates didn’t converge and low real interest rates
favoured intense capital flows among countries and financial and housing
bubbles. All these contradictions – exacerbated with the implementation of
the monetary union – existed before the crisis but they have exploded with
the speculative attacks against the sovereign debts of the most exposed
countries.

The social and popular alternatives to this crisis
require a daring refoundation of Europe, because European and international
cooperation are required for the reconstruction of the industrial pattern, the
ecological sustainability and the employment structure. But as such a global
refoundation seems out of reach in the immediate relationship of forces, the
exit from euro is proposed as an immediate solution in different countries.

The dilemma seems to be between a risky “exit” from
the eurozone and a utopian European harmonisation emerging out of the workers’
struggles. In our view, this is a false dichotomy and it is important to work
for a viable political strategy for the immediate confrontation. Any social
transformation implies the questioning of dominant social interests, their
privileges and their power and it is true that this confrontation takes place
primarily within a national framework.

But the resistance of the dominant classes and their
possible retaliatory measures exceed the national framework. The strategy of
leaving the euro does not necessarily concentrate on this effort for a European
alternative and in this sense, a strategy of rupture with “euroliberalism” is
required in order to generate the means for an alternative policy. This text is
not about the program for this rupture but rather concentrates on means to
implement such a program.

What should a left government do?

We are in the midst of what can be technically called
a “balance-sheet crisis”. This is a crisis triggered by private sector
deleveraging and debt minimisation, caused by the accumulation of an enormous
amount of fictitious assets, not backed with real fundamentals. In practical
words, it means that citizens have to pay for the debt or in other terms
validate the claims of the finance on current and future production and taxes.
The European states, in an action strictly coordinated at European and even at
the global level, have decided to nationalise the private debts by converting
them into sovereign debt and to impose austerity and transfer policies in order
to pay for such debts. It is the justification, the motivation and the
opportunity for the implementation of “structural reforms” whose objectives are
classically neoliberal, shrinking the public services of the welfare state,
cutting social spending and flexibilising the labour markets, in order to lower
the direct and indirect wage.

In our view, the political strategy of the left must
concentrate on the fight for a majority, for a left government, able to get rid
of this straightjacket.

Getting rid of the financial markets and managing the
deficit. In the short term, as an
immediate measure, a left government should find ways to finance the public
deficit outside the financial markets. The European rules forbid some of them and
this is the first rupture. Technically, there is a wide range of possible
measures which are not new and have been used in the past in various European
countries: a forced loan on the richer households; the prohibition to borrow
from non-residents; the obligation for banks to a quota of public bonds; bold
taxes on international transfers of dividends and capital operations, etc. and
of course a radical fiscal reform.

The simplest way would be to have the deficit financed
by the national central bank, as it is the case in the United Sates, Great
Britain, Japan, etc. It is possible to create a special bank allowed to
refinance itself with the central bank, but principally devoted to buy public
bonds (the ECB has done the same in practice).

Of course this is not mainly a technical issue. It is
a political rupture with the European order. Without such a rupture, any
heterodox policy would be immediately thwarted by an increase in the cost of
the financing of the public debt.

Getting rid of the financial markets and restructuring
the debt. However, this first set of
immediate measures does not reduce the burden of the accumulated debt and of
the interests on this debt. The long-term alternative is then the following:
either an everlasting fiscal austerity or a policy of cancellation of the debt
and an immediate moratorium on the public debt. A left government should say: “We
cannot serve the debt stealing wages and pensions, and we won’t.” After this
moratorium it should organise a citizens’ audit to target illegitimate debt,
which corresponds for instance to four elements:

the past “fiscal gifts” to richest households,
corporations and “rentiers”;

the debt created by the debt itself, through the snow-ball
effect created by the difference between interest rates and GDP growth rates,
as damaged by austerity and unemployment policies.

This audit leads the way for the imposition of a swap
of titles of the debt canceling a large part of it, as required. This is a
second rupture.

But the sovereign debts are also totally intermingled
with the private banks. That is why the bailout of a country has been in
general a bailout of banks. A third rupture from the neoliberal order is
needed: the control of international movements of capital, the control of
credit and the socialisation of banks. This is the only rational mean of
untangling the skein of debts. After all, this has been the option taken in
Sweden in the 1990s (neverthelessfollowed by their reprivatisation).

To summarise, opening an alternative road requires a
coherent set of three ruptures:

financing of the past and future issues of sovereign
debt;

cancellation of the illegitimate debt;

socialisation of banks for the control of credit.

These are means for a social transformation. How can
we get there?

A left government is necessary

In order to develop these three main ruptures that are
required for resisting the financial blackmail, a left government must be in
place. Although the social and political conditions for a strategy of
convergence and fight for such a government widely vary according to the
countries, all Europe focused in the summer of 2012 on the possibility for
Syriza to win the elections and to constitute the axis for such a government in
Greece. At the time and afterwards, Syriza led a campaign on the essential
themes we stand for in this manifest: a left government is an alliance to
cancel the memorandum and to restructure the debt protecting the wages and
pensions and the social services of health, education and social security. Our
approach here chimes with the “no sacrifice for the euro” approach of Syriza.

An exit of the euro is not a guarantee for rupture with
‘euro-liberalism’

It is obvious that a left government delivering such measures
must be very bold, very concentrated on a socialist program and must have large
popular support. This popular support can only be obtained if the platform is
clear on the main task of fighting the financial interests and to reconstruct
an economy for full employment and the social management of the common goods.
We should not deviate from this strategy. If the cancellation of the debt is
the goal, we should not deviate from the goal. To win and to deserve to win
strictly depends on political coherence and clarity. The first measures of a left
government is the fight against the debt and austerity.

For this effective policy against the debt, a left
government, provided it has the required popular support, must be ready to use
whatever democratic means necessary to confront the financial interests,
including measures of nationalisation of strategic sectors and a direct
confrontation with the German government, the ECB and the European Commission. The
defence of democracy and social achievements should be deepened at a
supranational level. However, if the Brussels policy prevents it, that defence will
ultimately have to be ensured from already existing national frameworks. This
confrontation should not see the euro as a taboo, and have alternative options
open including leaving the euro either if no other alternative is possible in
the European framework or if the European authorities force it. However this
should not be the starting point.

For any left government, the difficult consequences of
leaving the euro must be clarified. First, it would not necessarily restore
democratic sovereignty: the financing of the deficit would escape the control
of financial markets, but this control could be exercised by speculation
against the new/old currency whenever a country has a current account deficit.

Second, the global weight of the debt would not be
reduced. Instead, it would be increased in proportion of the rate of
devaluation, since the debt is denominated in euros. In this case, the government
would be forced to redenominate the public debt in the new national currency,
what is equivalent to a partial cancellation of the debt. The state has the power
to do that, even if an international judiciary conflict is to be expected, but
private firms and banks do not have the same sovereign power; consequently, the
value of private and financial debt would increase in the national currency
equivalent. In this framework, a nationalisation of the banks would be
eventually required by no other need than the bankruptcy of all the credit
sector, but this also means an increase of the public debt towards the
international financial sector.

Third, an inflationary process would be ignited by the
devaluation and therefore interest rates would tend to be increased, generating
new problems of internal debt and unequal distribution of income.

Fourth, the exit of the euro is typically presented as
a strategy designed to gain market shares through a competitive devaluation.
This type of approach does not break with the logic of competition of all
against all and abandons a strategy of a common European fight against
austerity.

Finally, continuing the fight without proposing an
exit of the euro and the EU as an alternative, increases the area of maneuvre
and bargaining power of a left government, as well as the chances of spillovers
of resistance to other countries in the EU. Hence this strategy is progressive
and internationalist as opposed to isolationist and national.

For a strategy of
unilateral rupture and extension

In contrast with the neoliberal vision of competition,
progressive solutions are based on cooperation and will work even better if
they are generalised to a larger number of countries. For example, if all
European countries reduced working time and charged a uniform tax on capital
income, such coordination would avoid the backlash that the same policy would
undergo if adopted in only one country. To pave the way for cooperation, a left
government should follow a unilateral strategy combining:

“good” measures
unilaterally implemented as, for example , the rejection of austerity or the
taxation of financial transactions;

accompanying plans
for protection such as capital controls.

The political risk of
challenging European Union rules to implement these initially nationally based
policies should be acknowledged. The idea is to extend these policies on a
European scale to allow these measures to be adopted by member states, for
example, in the extension of fiscal stimulus, or a European tax on financial
transactions.

However, the
political confrontation with the EU and other European states’ elites, in
particular the German government, cannot be avoided and thus the threat of exit
from the euro is not excluded as a viable option.

This strategic scheme acknowledges that the refoundation
of Europe cannot be the precondition to the implementation of an alternative
policy. The eventual retaliation measures against a left government must be
neutralised through counter-measures that effectively involve resort to
protectionist measures if needed. But the strategy is not protectionist in the
usual sense since it defends a social transformation emerging from the people
and not from the interests of national capitalism in its competition with other
capitalists. It is, therefore, a
“protectionism for extension”, whose very logic is to disappear
once the social measures for employment and against austerity have been generalised
across Europe.

The rupture with the European Union rules is not based on
a petition of principle, but rather on the efficacy, fairness and legitimacy of
measures that correspond to the interests of the majority and are equally
proposed to neighbouring countries. This strategic challenge can then rely on
social mobilisation in other countries and hence build a relation of forces
that can challenge the EU institutions. The recent experience of the neoliberal rescue plans implemented by the ECB and the European
Commission has shown that it is quite possible to bypass a number of the
provisions of the EU Treaties, and that European authorities do not hesitate to
do so for the worse. As a consequence, we reclaim the same capacity for
measures for the best, including the imposition of capital controls and other
instruments for the defense of the wages and pensions. In this scheme, the exit
of the euro is a threat or a weapon of last resort, as we pointed out
previously.

This strategy relies on the legitimacy of progressive
solutions that arise from their highly cooperative class nature. It is a cooperative
strategy of rupture with the current EU framework because it is undertaken in
the name of another model of development based on a new architecture for
Europe: a larger European budget financed by a common tax on capital that
finances harmonisation funds and socially and ecologically useful investments.
But we do not wait for this change: the fight against the debt and austerity is
the task of the day, such as fair measures defending the wages and pensions as
well as the social services and common goods.

In
short, a popular strategy for a left government must be ready to do whatever
necessary for this democratic fight. We stand for that strategy.